Friday, May 22, 2009

10 Million Cars Sold Is Not Enough

When I heard that automakers were expected to sell 10 million new cars and trucks in the U.S. this year, I thought that was a good thing. I said to myself: "The recession is finally coming to an end."

But as I continued to read the USA Today article, I learned that that figure makes 2009 one of the worst years the auto industry has seen in the past three decades.

Apparently, before the auto collapse last year, car companies routinely sold more than 16 million new cars and trucks annually in the U.S.

While 10 million may sound like a lot, it's simply not enough to make these car companies profitable. Chrysler's already in Chapter 11 bankruptcy reorganization, and General Motors will likely do the same on June 1st. Even normally healthy automakers such as Toyota and Nissan are losing money.

Many people don't understand this part of business. They think that when money is being exchanged, it means that companies are profiting. That's not necessarily true.

All companies have debts and expenses that have to be paid for first before a profit can be declared. It's very common to have most of your revenue allocated to paying bills and taxes, and not having much left over after that.

To prevent this, entrepreneurs should always be thinking of ways to lower their overhead. In fact, this should be heavily considered before you even pursue a business idea.

Overhead kills a lot of companies before they even launch. Others die off in a bad economy. I'm willing to bet that the companies that are still afloat right now are the ones that have figured out how to minimize their expenses.

1 comment:

  1. Excellent point about starting strong: keeping overhead low. In a technology-driven marketplace, that's more attainable. And for those who need brick-n-mortar establishments or equipment, so many creative ways to minimize expenses.